Whether employers are already offering an HSA-compatible health plan or are considering offering one in 2018 there are some important things to consider when administering this type of plan.
What is an HSA?
A health savings account (HSA) is an individually owned, tax-advantaged savings account that is offered alongside a specific type of health plan. Money can be deposited tax-free from the employee and/or the employer and it can earn interest tax-free. When money is withdrawn for qualified medical or retiree health expenses it is also tax-free. Unused HSA funds are non-forfeitable and roll over each year.
For a full list of eligible expenses click here.
What requirements need to be met to offer an HSA?
In order for a plan to be eligible for an HSA it must be combined with a qualified high deductible health plan (HDHP). The plan must offer 100% coverage with no out-of-pocket costs for preventive services under the HDHP. The plan, however, cannot offer first dollar benefits beyond preventive services prior to the deductible being met such as prescription drugs, office visits or emergency services. This means that all services, outside of preventive care, will apply to the deductible.
Currently, the minimum deductible for HDHPs to be eligible for HSAs is $1,300 employee only and $2,600 family. For 2018 these amounts have increased to $1,350 employee only and $2,700 family.
In addition to deductible requirements, qualified HDHPs also have out-of-pocket maximum requirements. The current out-of-pocket maximums that employees can pay are $6,550 employee only and $13,100 family. For 2018 these amounts have increased to $6,650 employee only and $13,300 family.
Even if the plan meets the qualified HDHP requirements, employees are still not permitted to open or contribute to an HSA if:
- They are also enrolled in a non-qualified health plan (including Medicare Part A or B, traditional copay plans or VA plans)
- They can be claimed as a dependent on someone else’s tax return, or
- Either they or their spouse are enrolled in a standard Flexible Spending Account (FSA)
What are employees able to contribute into their HSA’s?
The current contribution limits for HSA accounts are $3,400 employee only and $6,750 family. For 2018 these amounts have increased to $3,450 employee only and $6,900 family. In addition, employees age 55 and older are able to contribute an additional $1,000 per year, known as a catch-up contribution. This amount has remained $1,000 for 2018.
Why should I consider an HSA option for my employees?
Although changing from a traditional plan to an HDHP may seem like a rise in costs because of the higher deductible, the long term savings are very advantageous for both employees and employers. The HSAs are widely known for their tax advantages but some other benefits of an HSA are:
- Consumerism-High deductible health plans offer a greater awareness of true health care costs by the individual
- Ownership-Accounts are owned by the individual and are portable in the event of an employer change, unemployment, retirement etc.
- Affordability-High deductible health plans typically have lower monthly insurance premiums
- Savings- HSA funds can roll over from year to year and, in many cases, grow through investment earnings
- Control-HSA funds can be used to pay for qualified medical, dental and vision expenses.
What about changes to the ACA?
The American Health Care Act (AHCA) bill that passed the House of Representatives on May 4th, 2017 includes several updates to current HSA rules. Currently, increases in HSA contribution limits are computed based on inflation and are often set below the plan deductible or out-of-pocket limits. The proposed AHCA allows contribution limits to be equal to the out-of-pocket maximums of the HDHP to which they are tied. The proposed AHCA would also allow catch up contributions by spouses 55 and older to both make $1,000 catch up contributions to the same HSA account. The current limit is $1,000 per HSA per year per account.
For additional FAQs on HSA administration for employers, please click here.